12
OTTAWA — The C.D. Howe Institute is calling for the 2007 federal budget to deliver $46.5-billion in ambitious tax relief over five years to prepare Canada's aging population for a future where relatively fewer workers must support more retired elderly.
“As Canada's population ages and growth of the work force slows, creating a savings and investment environment that supports an extremely productive economy becomes increasingly urgent,” authors Finn Poschmann, William Robson and Robin Banerjee say in their report, Fiscal Tonic for an Aging Nation: A Shadow Federal Budget for 2007.
“Over the next decades, growth of the traditional working-age population will slow and then all but stop,” they said.
“The ratio of working age to older Canadians will fall by half over the next 25 years and continue to shrink for another 25 years.”
The demographic change facing Canada means the country will have to do more with less in order to raise, or even maintain, living standards. This requires more business investment per worker, more savings and stronger labour productivity growth, the authors say.
The solution is big tax cuts that enable companies to supercharge their productivity by giving employees the best tools possible, boosts the ability of Canadians to save for retirement and encourages foreign investors to provide more capital.
The authors say their prescription is affordable. “You can do this with judicious control of spending with no fear of running a deficit,” Mr. Poschmann said in an interview.
But the Conservatives would have to rein in government spending, holding the line on growth of non-defence operating costs over the five-year period, the report says.
The C.D. Howe Institute says business needs more cash to invest and this could be accomplished by slashing the general corporate income tax rate to 15 per cent by 2012, a change from current plans for this rate to drop to 18.5-per cent in 2011.
They're also recommending Ottawa phase out the minimum tax on financial institutions and keep improving depreciation write-off rates for capital goods such as plants and other building structures “so that more productive and environmentally sound equipment may readily replace obsolete capital stock.”
Canada's share of global direct investment has been in long-term decline and the report says to help boost foreign capital available, Ottawa should scrap a 10-per-cent withholding tax on arms-length interest payments to U.S. investors.
It's also recommending that individual foreign investors should be allowed to shield income from Canadian federal taxes up to the same basic personal amount that all Canadian taxpayers enjoy — currently about $9,200. “[This] makes partnership and other ventures for international investors more attractive,” the report says, saying the United Kingdom and the United States already offer similar exemptions.
The C.D. Howe authors say the federal tax system hurts Canadians' capacity to save and they propose Ottawa boost the incentive to plan for retirement.
Ottawa should raise the amount of earnings Canadians can put in registered retirement savings plans to 25 per cent of earned income from 18 per cent, and boost dollar limits to $32,000 in 2015 from $22,000 in 2010, they say.
The think tank proposes what it calls a simple way for the Harper government to fulfill a 2006 election campaign pledge to deliver a capital gains tax break — a promise they're expected to keep in the March 19 federal budget.
It says taxpayers with taxable capital gains should receive a matching increase in the dollar limit to their RRSP contribution. Instead of paying capital gains tax, which applies to 50 per cent of gains, they should be able to reinvest up to half their net capital gains in an RRSP — subject to dollar limits.
In Pictures:
